According to some recent data from Equifax and the New York Fed Consumer Credit Panel, Americans belonging to the age group of 18-29 years old actually currently owe as much as $1.05 trillion in terms of debt. This overpowering debt seems to be mostly composed of student loans. However, this phenomenal debt would be comprising credit card debt, auto loans, mortgage debt, and some other types of consumer credit.
High-interest debt could prove to be highly distressing. It could take a toll both on your finances and your mental well-being. It would be impacting both your long and short term financial goals. If you have high-cost debts, you are compelled to use up your savings because of the high interest rates and ever-mounting EMIs. However, you have access to an easy option that could definitely rescue you from this financial hardship.
You may take out a lower-interest personal loan on a long-term basis for debt consolidation. Debt consolidation is an effective way of combining your multiple unsecured debts into one monthly payment. You could take out a debt consolidation loan by using a personal loan or home equity loan. It is important to do your debt consolidation with absolute perfection.
Debt Consolidation Steps
Debt consolidation using home equity loan could be tricky as you are putting your valuable asset, such as your home at risk. If you fail to make the monthly payments timely you are in for trouble. Once you start defaulting eventually, you would be losing your home. Your home would be foreclosed if you are unable to manage to effectively pay off the loan. That way, it is safer to take out a personal loan for consolidating your debts. Let us explore effective steps to consolidate your multiple debts using a personal loan.
Do Adequate Homework for Accurate Comparative Analysis
You need to do thorough research online. Examine the different types of options available to you. Choose the best option after meticulous research online. Sometimes debt consolidation companies are known to be spammy. So, you need to be careful while choosing one. Examine the accreditations and licenses and go through online customer reviews to know more about their quality and reliability. Check their reputation on BBB or the Better Business Bureau. Do a comparative evaluation of various services and the interest rate and loan terms offered by the lenders. Moreover, you could consider using ‘Debt Consolidation Calculator (1c)’ for reviewing your available options.
As per https://www.forbes.com, “The calculator provides two types of information about each option. One is the total monthly payment, which consists of the mortgage payment, mortgage insurance premium payment if any, and non-mortgage debt payments if any. Borrowers on tight budgets must be concerned that the monthly payment is affordable, but it should not be the major determinant of their choice.”
The second kind of information provided by the calculator about the available options would be their total expenditure or cost over a certain period of time as per the specifications of the user. Suppose the time horizon of the user is 5 years, the total expenditure or cost of every option would be the total monthly payments extending over 5 years of time including the interest amount minus the tax savings and rebates in the total debt scenario over the period. Browse through sites such as nationaldebtrelief.com to learn more and for a perfect solution.
Try Sleeping On It
Once you have done your research and identified the right option and you are satisfied with your decision, take some time maybe a couple of days and try to sleep on it. Do not be in a haste to commit you. It is best to reconsider and reaffirm to yourself that you have taken the right decision to opt for a debt consolidation loan to pay off your multiple loans.
Determine Accurately the Amount You Need
You need to accurately calculate the total amount of your outstanding debts. The total sum of money you owe to your existing creditors is the amount you need to take out a loan for. Some individuals prefer to take slightly more as compared to their total debt amount to take care of some other balances and bills. However, do not go overboard and be realistic otherwise your debt consolidation loan request would be declined.
Determine Your Loan Term
Different companies would be offering different loan terms or repayment periods. You must choose the loan term as per your affordability and convenience. The repayment period should be determined according to how much you are willing to spend every month. Once you are clear about what you actually need and the amount you can pay, go ahead and compare products for identifying the best one.
Find Out about the Fees
There are some additional fees and hidden fees that you must pay attention to. Always go to a highly reputed and reliable company. There are some agencies that would like to charge origination fees for administering the overall loan sanction process. You may be expected to pay as much as 5% of the entire amount as origination fees. Moreover, there are some companies who would ask for certain prepayment charges as a penalty.
The online application process would be taking just a few minutes. These days most lenders give you the opportunity to put in an application online from the privacy of your home or office. You no longer need to visit their branch or office. Some companies also, welcome application via the telephone or the mail. Most applications necessitate providing important information including your Social Security Number, your name and address. You would have to reveal your monthly income and the total amount of debt you are carrying presently.
Consolidate Your Multiple Debts
Once the loan approval is done, the debt consolidation would take place in full blast. You would no longer be bothered about paying off your multiple debts on your own. The lender would be paying off the debts on your behalf.
Make All Your Monthly Payments
You now have to make the necessary monthly payments. It is certainly an easy process. It is a good idea to consider setting up bank withdrawals on a regular basis. The amount owed would be taken out automatically. In this context, you must know that these withdrawals would continue until your balance dips to zero. You may consider tracking your overall progress online or via the effective mobile app of the financial institution. You would be receiving a monthly statement demonstrating your progress.
Numerous people get out of debts and fall into debt again within an incredibly short period of time after consolidation. This is pretty common because when you consolidate multiple existing debts it would be freeing up some available credit and you would be tempted to use them. If you are consolidating your debts, it is best to consider closing the credit card accounts and pay attention to paying off your debt consolidation loan.